To paraphrase Kipling*, Moscetti is a man who could probably risk it all, lose, start again at the beginning and never breathe a word about his loss.

Much as we share his belief that Nhc is a bet worth taking, and that the benefits will likely more than offset the deal’s risks, operational and financial hurdles are there for all to see. Having gained heft in Australia and New Zealand, India remains to be conquered, and joint ventures there with Widex and GN ReSound should be evaluated.

On the face of it, the transaction has its strong logic. Amplifon enters new audiology retail markets in Australia, worth total revenues of A$560 million, of which Nhc has a 16% share, and New Zealand (A$120 million, of which it has a 45% share). The deal also brings 11 retail outlets in India, where more than 25,000 children are born deaf every year and, according to Nhc, some 8-10% of the adult population has a hearing disability. The potential in this market is clearly immense.

Development of new markets will be key to Nhc’s future growth given limited growth opportunities in Europe and North America. Its challenge will be to fend off competition at home, while targeting developing market growth in the face of threats posed by Switzerland’s Sonova Holding.

Amplifon was one of 15 bidders circling the Nhc, Moscetti told Dow Jones Investment Banker the day after the deal was announced. We understand that manufacturers GN Resound, Sonova and William Demant Holding were all over Nhc, along with Australian private equity and a primary healthcare operator.

To prevail, Moscetti had to persuade Amplifon’s founding shareholders to dilute their stake in the group, which they will still control. After repeated criticism from the financial community over the years that the current 40% free float was too low, he told the founding shareholders the moment had come. They had to reduce their stake.

“And in the end they said, ‘OK, Mr. Moscetti. If you suggest this, we agree,’” he said.

The deal’s economics might seem a little hard to understand at first. Moscetti concedes that he “didn’t pay a very cheap price.”

Given that it costs just A$30,000 to open a new retail outlet in Australia, it’s startling that Amplifon splashed out an average of A$2.3 million for each of Nhc’s shops. The deal, though, is worth more than the sum of its parts.

“I bought a million names in the customer base. I bought one very (well) performing business model. I bought one excellent machine… a Ferrari,” Moscetti said. He’ll have vital support, with key Nhc management remaining for at least three years.

“I strongly believe that there are synergies,” he said. Suppliers have been chasing him since the deal was announced, and while pre-Nhc his position at the negotiating table was strong, it’s grown much stronger now. “In purchasing, I now have 100,000 units more to negotiate with suppliers. I expect no less than a 10 (point) improvement in the cost of goods (in Australia).”

As for the main challenge, Moscetti says it’s “to maintain or improve profitability of the company, because we bought one of the most profitable” audiology retailers. Not only will this help to justify the price, it will also enable the debt taken on to finance the takeover to fall back to more manageable levels. On closing the deal Amplifon’s net debt will stand at around €500 million.

In Australia and New Zealand, where Nhc has near market leadership, Moscetti doesn’t see further M&A. Rather, Amplifon will grow through the opening of new shops, which usually break even within five months and reach the profitability level of the group within a year, he said. And a key, underappreciated aspect of the takeover is Nhc’s nascent position in India.

“In three to five years the most important growth in our business will come from the developing markets. We have to work to develop and consolidate the market because in three to five years it will be too late,” said Moscetti.

Despite the fatigue of pulling off an intercontinental deal, Moscetti’s croaky voice has barely weakened. “I’m a little bit tired, but I’m happy,” he insists, “but the financial community has a short memory.”

This article originally appeared on Dow Jones Investment Banker. To find out more about the service please visit: www.djibanker.com

Add a Comment

Thanks for reading The Source. We would like to direct you to MoneyBeat, the Wall Street Journal’s brand new global blog. MoneyBeat unites MarketBeat, The Source, Overheard and all the Deal Journal blogs, bringing together all the market, M&A, IPO and hedge-fund news from those blogs into a 24-hour hub for finance news. Check it out and let us know what you think at moneyblog@wsj.com.